515 directors face shareholder axe

More than 500 directors of listed companies face being removed by shareholders this year following an investor revolt about executive pay.

Investors vented their anger about excessive executive pay policies by registering a strike against 108 companies under the federal government’s “two strikes" rule, amid a 15 per cent slump in the market.

If these boards incur a second protest vote of 25 per cent or more this year, the entire board will be spilled and will be required to stand for re-election.

With more than 500 annual shareholder meetings scheduled for the first half of the year, the numbers of directors facing the axe is set to soar even further, analysis by the Weekend Financial Review reveals.

“Company Directors has always said that this was a poor piece of legislation that made it more difficult for boards to function effectively, and it needs to be abolished or at least amended to add value instead of disruption," Australian Institute of Company Directors chief executive
John Colvin
said on Friday.

“The legislation allows for boards to be held hostage to a small faction of shareholders potentially representing as few as 10 per cent of the voting shares, with costly and disruptive consequences – diverting directors’ attention from significant and value-adding issues they could be focusing on."

But chairman of
Transfield Services
and Business Council of Australia president
Tony Shepherd
said the number was less than 6 per cent of all listed companies.

“These latest figures demonstrate that the vast majority of Australian companies are obviously performing in line with shareholder expectations because they have not had a remuneration strike recorded against them," Mr Shepherd said.

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“Despite a competitive global environment for top management talent, our executive remuneration is below that in similar-sized companies in the US, United Kingdom and large European countries such as France and Germany."

The Parliamentary Secretary to the Treasurer,
David Bradbury
, insisted the changes were always intended to drive cultural change.

“They will encourage boards to engage with shareholders and justify the remuneration that is provided to executives," he said. “I believe that most companies will embrace the spirit of these reforms and listen to the views of their shareholders in the same way that companies worked with shareholders following the introduction of the non-binding vote."

Opposition spokesman Mathias Cormann was not able to comment on his support for the measures.

The debate about executive pay has exploded in the UK, where the government plans to hand shareholders a binding vote and on Tuesday stripped former RBS chief Fred Goodwin of his knighthood.

On Monday,
Transurban
chairman
Lindsay Maxsted
admitted the successor to chief executive Chris Lynch – who received $21 million in his tenure – would not be so well paid. “The time to address remuneration is when people change position," Mr Maxsted said, adding “the world had moved on" since 2007 when Mr Lynch’s contract was negotiated.

Five of the top 100 companies, including
Bluescope Steel
,
Crown
,
Dexus Property
Group,
UGL
and
News Corporation
received a protest vote of 25 per cent or more. Among the top 200, 14 boards received strikes, rising to 26 among the top 300, and 82 outside the largest 300.

The result puts 515 directors on notice of being removed, and 10 of those face a “strike" on more than one board. Thirty-five listed companies had their remuneration reports voted down by shareholders.

“I am not so surprised that most of the strikes have occurred outside of the top 300 companies," said Chartered Secretaries policy director Judith Fox. “Investors see executive pay as one of their few windows into the boardroom, so directors need to treat it as seriously as other major challenges."

Another five companies claimed to have avoided a “strike" on a show of hands in their report to the ASX but would have breached the 25 per cent “strike" threshold if a formal poll had been taken.

The analysis undertaken by the Weekend Financial Review uncovered serious concerns about the level of disclosure and accuracy of the results reported by several companies.

At a minor level, the majority of companies provide no indication of whether they had incurred a “strike" or failed to tally their results. More seriously, some companies appear to have failed to comply with the ASX listing rules for the reform.

The Australian Securities and Investments Commission plans shortly to release a report warning of a crackdown into the issue.